- - Thursday, October 6, 2011


After sliding on Monday, the S&P 500 moved higher mid-week, reflecting tepid optimism in the eurozone, even though here at home we had what I would call mediocre economic data. I categorize the data as mediocre because it was far from robust and did not suggest a dramatic uptick in the economy.

Rather in aggregate, this weeks data, while modestly ahead of expectations, is still far below anything that would suggest a vibrant economy. The best example is the report from the Institute for Supply Management on its manufacturing and services indicators - while both data points were ahead of Wall Street forecasts for September, both remained very close to the expansion/contraction line marked by a reading of 50, a place they have resided at for the past several months.

Digging a tad deeper, however, we find that several aspects of both the manufacturing and services indicators were not only below 50 in September, but some, such as manufacturing orders, have been in contraction territory for the last few months.

Even the weekly jobless claims this week climbed back above the 400,000 mark. Many will quickly point to this weeks ADP Employment Report, which showed 91,000 private sector jobs were created in September, as a positive sign. On its own that is a so-so figure at best, for while it shows jobs are being created, the rate at which those jobs are being created remains well short of where it needs to be.

Now lets factor in the Challenger Job Cuts report for September, which showed a steep increase in layoffs for the month, compared to August and to September 2010. All in all, September ranked the highest month in job cuts since April 2009. What was more striking to me was that according to the Challenger report, for the first nine months of 2011, job cuts grew 16.5 percent compared to the same point in 2010.

The sector with the greatest number of layoffs thus far in 2011 has been government employers. That is key to thinking about Fridays September employment report because the base nonfarm payroll number reflects both public and private sector jobs added in the month. Remember that while ADP originally reported 91,000 jobs being added in August and the Bureau of Labor Statistics showed modest growth in nonfarm private payrolls, overall nonfarm payrolls for August was zero.

Why? Because government employment continued to trend down in August. With local and state government continuing to contend with budget shortfalls, odds are the overall nonfarm payroll data we will get on Friday will be weaker than September figures reported by ADP.

I expect the public sector will continue to be challenged in the months ahead from the local to the federal level, and that means to jump-start job creation we must look to the private sector. With much uncertainty ahead in the areas of taxes, health care, regulation and so on, not to mention the all important question - how strong is end demand for goods and services? - it is hard to see any meaningful change in the jobs picture near-term, despite all the rhetoric being tossed around in Washington.

With that in mind, Federal Reserve Chairman Ben S. Bernanke’s comment this week that the domestic economic recovery is “close to faltering” was certainly not new and more likely expected. One has to look no further than data from Gallup that reported consumer spending slowed in September from August and that upper-income spending fell for the second month in a row. This is the case, even though gasoline prices have finally started to fall at the pump and now stand near $3.40 per gallon on average according to AAA compared to $3.66 a month ago and near $4 per gallon several months ago.

This week Apple Inc.s founder and visionary Steve Jobs died and in reading over a number of his quotes, there are many favorites, but with regard to the current economic and political landscape the one I find most insightful is the following that refers to innovation and getting Apple back on its feet in the late 1990s:

“It’s not about money. It’s about the people you have, how you’re led, and how much you get it.”

In terms of how to jump-start the domestic economy, perhaps it is time, if not past the time, to think different.

Chris Versace, the Thematic Investor, is director of research at Think 20/20, an independent equity-research and corporate-access firm in the Washington, D.C., area. He can be reached at [email protected] At the time of publication, Mr. Versace had no positions in companies mentioned; however, positions can change.

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